Completion of Greece's largest bank merger in decades was thrown into doubt on Monday after Alpha Bank said it needs to assess the impact of the country's revised sovereign debt swap scheme before it can join with EFG Eurobank .
Alpha and EFG Eurobank agreed in August to create Greece's biggest bank, to better cope with the debt crisis which has caused deposit outflows and rising loan impairments.
But the debt swap deal between Greece and its private sector creditors which is still being negotiated is set to cause much deeper losses to banks than when the merger was agreed, meaning that they will face substantially bigger recapitalisation needs.
The bank intends to await the definite terms of the private sector involvement (PSI) before calling a general assembly to inform shareholders and make a decision, Alpha Bank said in a bourse filing after the stock market's close.
Several analysts said Alpha Bank, whose exposure to junk-rated Greek government bonds is about half that of Eurobank's, may be seeking better terms for the merger deal, which had been expected to close in the coming weeks.
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Alpha Bank seems to be wanting to renegotiate the share swap ratio of the merger, not pulling out of the deal, said a banking analyst who declined to be named.
The two sides had agreed to exchange five Alpha bank shares for every seven shares held in EFG.
Alpha, Greece's third-largest lender, said earlier on Monday the timetable and outcome of the merger plan were uncertain because of the debt swap scheme. As soon as definitive facts emerge, the bank will duly update its disclosure, it said.
Alpha said that although its shareholders had given the green light to the merger on November 15, they had not taken into account the impact of a new government bond swap scheme agreed at a European Council summit on October 26, which entails private creditors taking a bigger than 50 percent nominal writedown on their Greek bonds.
Battered by deposit outflows, sovereign debt downgrades and rising bad loans, Greek banks have been urged to explore tie-ups in the hope of regaining access to wholesale funding markets.
But the banks are likely to have to turn to state support, and potential nationalisation, after the country's debt restructuring which is expected to result in a net present value loss of around 70 percent on government bonds compared to 21 percent in the initial bond swap plan conceived last year.
There are financial issues that need to be looked into, such as the net present value loss due to the bond swap. This does not mean the merger agreement is collapsing or that it will not go ahead, an Alpha Bank official who did not want to be named told Reuters earlier on Monday.
EFG Eurobank, which is the country's second-largest bank and holds 6.9 billion euros in Greek government bonds while Alpha has around 3.8 billion euros, said there was no reason to delay the merger plans.
Eurobank ... is consulting with Alpha Bank in order to complete the merger process the soonest possible, EFG said.
A banking source close to the two banks said talks were continuing between top officials at the banks.
The government, which has been pushing for mergers for months, together with the European Union and the International Monetary Fund, said on Monday that there was no reason for the government debt swap plan to affect the merger.
The Greek regulator suspended trade in the shares of the two banks earlier in the day, before which shares in Alpha Bank were up 9.4 percent at 1.28 euros, outperforming the Athens bourse's banking index <.FTATBNK>. Eurobank shares were trading 0.25 percent lower at 0.80 euros.
(Writing by Ingrid Melander and George Georgiopoulos; Editing by Greg Mahlich)